Lecture Illustration 2: Gordon's Caf Investment Gordon has a basement space in the building that would be a suitable food storage area for one of the cafs because it has no windows. One of Gordon's potential tenants offered to rent the space from Gordon for $60 000 per year, with an increase of $2000 after three years. However, Gordon would like to open a health club to serve the tenants in his building, people living in the neighbourhood as well as staff and students who attend the nearby university. Gordon hires a consultant to gather information about the project and to recommend a plan of action. The fee for this service is $5000. The following list includes the relevant information the consulting entity estimates for the project: 1. The cost of renovation and new equipment that will be purchased is $650 000. The terminal value is estimated at $100 000 after five years. 2. Promotion costs to advertise the club will be $120 000 for the first year and $50 000 per year thereafter. 3. The revenues for the health club are estimated to be $300 000 in the first year, $400 000 in the second, and $500 000 in the third through fifth years. 4. The operating costs for the health club are estimated to be $200 000 for the first year and $130 000 for each of the following years. Notice that Gordon does not include the fee paid to the consultant, as this is a sunk cost. Taxes are ignored for this illustration Lecture Illustration 2: Gordon's Caf Investment Gordon has a basement space in the building that would be a suitable food storage area for one of the cafs because it has no windows. One of Gordon's potential tenants offered to rent the space from Gordon for $60 000 per year, with an increase of $2000 after three years. However, Gordon would like to open a health club to serve the tenants in his building, people living in the neighbourhood as well as staff and students who attend the nearby university. Gordon hires a consultant to gather information about the project and to recommend a plan of action. The fee for this service is $5000. The following list includes the relevant information the consulting entity estimates for the project: 1. The cost of renovation and new equipment that will be purchased is $650 000. The terminal value is estimated at $100 000 after five years. 2. Promotion costs to advertise the club will be $120 000 for the first year and $50 000 per year thereafter. 3. The revenues for the health club are estimated to be $300 000 in the first year, $400 000 in the second, and $500 000 in the third through fifth years. 4. The operating costs for the health club are estimated to be $200 000 for the first year and $130 000 for each of the following years. Notice that Gordon does not include the fee paid to the consultant, as this is a sunk cost. Taxes are ignored for this illustration